Evidence of meeting #2 for Finance in the 41st Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was cmhc.
A recording is available from Parliament.
6:25 p.m.
Conservative
The Chair Conservative James Rajotte
I call this meeting to order.
Seeing as the time is very short, I think we should go right to the questions.
Perhaps we'll just have our witnesses introduce themselves first.
Ms. Pearse, would you and your colleague introduce yourselves?
6:25 p.m.
Jane Pearse Director, Financial Institutions Division, Department of Finance
I am Jane Pearse, and I am the director of the financial institutions division at the Department of Finance.
6:25 p.m.
Ling Wang Executive Advisor, Financial Sector Policy Branch, Department of Finance
I am Ling Wang, and I am the chief of the housing finance section at the financial institutions division at the Department of Finance.
6:25 p.m.
Conservative
The Chair Conservative James Rajotte
Thank you.
Ms. Nash will begin the questions. Please keep your answers as brief as possible. She has only five minutes.
Ms. Nash.
6:25 p.m.
NDP
Peggy Nash NDP Parkdale—High Park, ON
First of all, thank you for being here and waiting with uncertainty as to whether we were going to get to ask you questions.
My question about part 7 of the Budget Implementation Act is around the mortgage insurance. Why is this section needed, and why can't CMHC, which exists now, and is, as I understand it, a crown corporation, where Canadians have a window on its functioning...? It has steered us in good stead through the ups and downs of the market. What is it that CMHC cannot do that requires these private insurers to come in to perform this function for Canadians?
6:25 p.m.
Director, Financial Institutions Division, Department of Finance
We have had a situation in Canada for a number of years now, probably back to the 1980s, where we've had private mortgage insurance offered within Canada. There was a decision to give CMHC a commercial mandate to offer mortgage insurance and to allow private mortgage insurers to enter the market. So a number of private mortgage insurers have entered the Canadian marketplace over the last 20 or 30 years.
This piece of legislation converts the existing contracts that exist between the government and each individual private mortgage insurer into a piece of legislation. It abrogates those existing outstanding contracts; rather, it brings those private mortgage insurers into a legislative framework. It will be clearer to Canadians and clearer to the private mortgage insurers the framework that exists for them to do business in Canada. It doesn't alter the share of private mortgage insurance offered in Canada vis-à-vis the public or of CMHC mortgage insurance. Currently there is a sharing of that mortgage insurance pie, if you will, between CMHC and the private mortgage insurers.
So it doesn't alter that distribution; it just pulls the existing private contracts into a piece of legislation.
6:25 p.m.
NDP
Peggy Nash NDP Parkdale—High Park, ON
But some specific companies are named here. Are they the only private companies that...?
You're saying that in effect this is no change. It's codifying what already takes place.
6:25 p.m.
NDP
Peggy Nash NDP Parkdale—High Park, ON
Are these the only two companies, or three companies, that are--
6:25 p.m.
Director, Financial Institutions Division, Department of Finance
There are actually more companies named in this piece of legislation than currently are offering business as private mortgage insurers in Canada. A contract had been written in the past, and this section of the legislation makes sure that all of the contracts that have ever been written are abrogated.
There are currently two companies that are offering private mortgage insurance in Canada.
6:25 p.m.
Director, Financial Institutions Division, Department of Finance
One is Genworth Canada and the other is Canada Guaranty.
6:25 p.m.
NDP
Peggy Nash NDP Parkdale—High Park, ON
Okay. They're the ones that are named here, under the interpretation.
What kind of liability would Canadians have for the operations of these private insurers? As I understand it, they're American-based. What liability would Canadians have for their operations should there be an overextension of insurance operated by these companies?
6:30 p.m.
Director, Financial Institutions Division, Department of Finance
The government, as part of this legislation, will be offering a 90% guarantee to backstop the failure. If there were to be a failure in a private mortgage insurer, the government would provide a 90% backstop for the mortgage insurance that had been guaranteed by that company. That would be the outstanding liability.
To back that liability, the government, through the Office of the Superintendent of Financial Institutions, requires every financial institution in Canada to hold capital against its risks. That capital is required from the private mortgage insurers.
In addition, this legislation provides for the Minister of Finance to require an additional layer of capital to be held by the private mortgage insurers that recognizes explicitly the guarantee the government is providing.
So there are a number of different layers of protection, if you will, or buffers. There is never a guarantee, but it would provide buffers so that if that financial institution were under pressure from the market, it would have that level of capital to eat through, effectively, before it went into failure.
6:30 p.m.
Conservative
The Chair Conservative James Rajotte
As chair I will just say that unless there's unanimous consent, we are obligated to suspend, because the bells have started ringing.
I'm seeking guidance from the committee. Do we want to continue questioning for another five or ten minutes now, or do we want to come back after the vote?
6:30 p.m.
Conservative
The Chair Conservative James Rajotte
It's a 15-minute bell. Okay, I have consent then.
I have Ms. McLeod and Mr. Marston.
Ms. McLeod, go ahead very briefly, please.
6:30 p.m.
Conservative
Cathy McLeod Conservative Kamloops—Thompson—Cariboo, BC
I think essentially you're looking to increase transparency. Maybe you could speak briefly to that.
Would this be the first time in Canada that such contracts have been made fully transparent by public legislation? Is that accurate?
6:30 p.m.
Director, Financial Institutions Division, Department of Finance
Contracts are usually private between the two contracting parties. Unless the other party decided to make their contract available to a third party, it would be a private document.
And, yes, the outcome of having this piece of legislation to replace the private contracts is that there will be more clarity in terms of what the individual arrangements are with the two current private mortgage insurers. It could provide clarity for lenders and borrowers to know what stands behind that guarantee.
6:30 p.m.
Conservative
6:30 p.m.
NDP
Wayne Marston NDP Hamilton East—Stoney Creek, ON
I have a few quick points.
One, are the two companies operating under the same regulations as was CMHC?
Two, does this not increase public liability compared to what it was when CMHC was out there on its own?
Three, was either one of these two companies involved in the mortgage defaults in the U.S.?
6:30 p.m.
Director, Financial Institutions Division, Department of Finance
Your first question was whether the legislation is the same for the private mortgage insurers as it was for CMHC.
6:30 p.m.
NDP
Wayne Marston NDP Hamilton East—Stoney Creek, ON
That's right. It's whether they function under the same regulations.
6:30 p.m.
Director, Financial Institutions Division, Department of Finance
CMHC currently has a piece of legislation. Actually there are several, but you'll see at the very end of part 7 that there are consequential amendments. Those consequential amendments are to the National Housing Act. That act is what CMHC is obligated to follow.
6:30 p.m.
NDP